Why investors are turning bullish on European markets again

Europe’s equity outlook is getting a caller dose of optimism from money managers, buoyed by receding waste and acquisition tensions, easing ostentation fears, and expectations of further cardinal slope support.

According to nan latest Bank of America European Fund Manager Survey, released earlier this week, investors are progressively positioning for a soft economical landing, pinch increasing belief that world monetary easing, peculiarly from nan US Federal Reserve, will thief offset slowing economical momentum successful cardinal markets.

While interest astir nan weakening US labour marketplace has jumped — now classed nan number 1 downside consequence by 59% of European investors — that hasn’t derailed broader maturation expectations.

Only 44% expect a slowdown successful nan US, nan lowest reference since February. Meanwhile, expectations for a reacceleration successful US maturation person deed a 17-month high.

Hype astir Europe’s exceptionalism softens

The position of "EU exceptionalism", which had gained traction aft President Donald Trump announced sweeping waste and acquisition tariffs earlier this year, has now moderated. Still, assurance successful European companies’ maturation imaginable remains robust.

The nett overweight connected European equities successful world portfolios declined to 15%, from a highest of 41% successful July, arsenic assurance successful Europe’s expertise to outperform nan US has been tested by enduring concerns complete governmental instability and underwhelming net growth.

Yet absolute sentiment connected European equities has improved markedly. A nett 37% of respondents expect upside successful nan adjacent term, up from 15% past month. Some 52% now forecast mild gains successful nan coming months, while conscionable 15% spot downside risk, nan lowest since February.

Underpinning this assurance is simply a belief that net upgrades will continue. Indeed, 70% of European money managers mention stronger net arsenic nan astir apt driver of equity gains, while conscionable 26% position net downgrades arsenic nan superior consequence for a marketplace correction.

Stagflation worries ease

The prevailing macro outlook among respondents is still 1 of a “soft, but stagflationary” landing. However, nan stock of investors expecting stagflation fell to 41% from 58% past month.

More investors are now betting connected a benign diminution successful inflation, while expectations of a world recession person continued to moderate.

Only 16% of world money managers now expect a slowdown, down sharply from 41% successful August, while 67% spot a soft landing arsenic nan astir probable outcome.

Investors progressively position German fiscal description (cited by 74%) arsenic nan cardinal driver of immoderate European maturation acceleration, acold up of China stimulus aliases ECB policy. At nan aforesaid time, 52% judge tariff risks are now mostly priced in, while concerns complete a world waste and acquisition warfare person slipped successful importance.

Still, tail risks remain.

The astir cited concerns for nan months up are a 2nd ostentation activity (26%) and fears that nan US Federal Reserve whitethorn suffer its independence, perchance fuelling dollar weakening (24%).

The bearish dollar sentiment is nearing historical highs, pinch a nett 47% of world managers expecting nan greenback to weaken complete nan coming year.

Risk appetite

Despite nan upbeat outlook for earnings, European investors are opening to mobility their positioning.

The stock worried astir lacking protect (more stable) vulnerability (19%) has risen sharply, acold outweighing those concerned astir missing retired connected cyclical (more volatile) upside (4%). That's nan widest spread successful 2 years.

Healthcare has overtaken financials arsenic nan astir favoured assemblage for nan adjacent 12 months, pinch industrials, utilities, and building besides enjoying overweight positions.

Banks stay charismatic to some, pinch 37% still affirmative connected nan sector, but enthusiasm has cooled from 58% successful August. Energy, autos, and media stay nan slightest loved sectors, pinch nan highest nett underweights.

Geographically, Germany remains nan astir preferred equity marketplace successful Europe, backed by continued belief successful fiscal stimulus arsenic a maturation catalyst.

France, connected nan different hand, has fallen to nan bottommost of nan ranking owed to persistent governmental risks. Spain, bolstered by resilient net successful banks and utilities, ranks 2nd successful investor preference.

So what's nan bottommost line?

After a summertime marked by monetary argumentation pivots and softening geopolitical risks, European money managers look cautiously constructive heading into nan last agelong of nan year.

While doubts persist astir structural underperformance and governmental uncertainty successful parts of nan bloc, nan operation of fading waste and acquisition tensions, supportive fiscal argumentation — particularly from Germany — and improving net sentiment is breathing caller life into nan continent’s equity narrative.

With world recession fears receding and cardinal banks turning much accommodative, investors are not stepping distant from risk.